FRAUD MANAGEMENT AND PERFORMANCE OF FINANCIAL INSTITUTION IN NIGERIA

CHAPTER ONE

1.0              INTRODUCTION

1.1              BACKGROUND OF THE STUDY

The term irregularities are used to refer to intentional distortion

of financial statements, for whatever purpose and to misappropriations of assets, whether or not accompanied by

distortions of financial statements. Fraud is one type of irregularity. In auditing guideline, the word fraud is used to refer to irregularities involving the use of criminal deception to obtain an unjust or illegal advantage.

Fraud may entail that proper accounting record have not been maintained, it may also indicate that some internal controls are not effective and that the auditor cannot rely on these internal controls. Existence of Fraud in financial statements could jeopardize the statements from showing true and fair view and complying with the companies and Allied Matter Acts (CAMA) 1990.

Therefore, fraud in banks must be looked at generally as “acts that involve the loss of assets by banks through deceitful and dishonest means. The intention of the fraudster is to dishonestly benefit himself to detriment of the bank or bank staff or bank customer or any other member of the public via banking operations.

Fraud can be committed by bank customer, bank customer, bank staff and customers or a third party that is non-customers. (Eze,

2004). 

1.2   STATEMENT OF THE PROBLEM

Fraud in Nigeria financial institutions has remained an unavoidable problem and has also resisted all practicable treatment. The incidence has not only become incessant but also been on the increase in the recent past.

 Although, it has assumed global dimension, the rate of growth in Nigeria has been outstanding in sophistication from N1542.91 million in 1996, the amount involved in commercial banks alone rose to N3590.31 million in 1997. Where as the actual/expected loss went from N371.08 million to N224.54 million (NDIC). This has affected the financial institutions profitability in no small measure.

            The general confidence reposed in the banking institutions has become eroded since the new concepts of distress, bank failures and closures of 1990’s. From available records, out of about 115 financial institutions operating in the country as at 1996, surprisingly 52 were distressed while 6 were acquired. With the frequent of fraud, people are no longer at ease keeping their monies in the commercial banks but prefer to keep them in their houses or concretizes them in wares (an uncivilized practice for underdeveloped economy).

 The internal control measures in the financial institutions seem to have faults. Such that, it has aided the perpetration of fraud. As a result, the industry shares 90% of all cases of malpractices, forgeries and frauds. (Wiki pedia 2007).

1.3 OBEJECTIVES OF THE STUDY

The specific objectives of the study include the following.

a.                 To identify the causes of fraud in financial institutions.

b.                To identify the types of fraud in financial institutions.

c.                 To evaluate the extent of fraud in financial institutions.

d.                To evaluate how fraud is detected and controlled in Nigeria financial institutions.

1.4RESEARCH QUESTIONS

The study poses the following research questions.

i.                   What are the causes of fraud in financial institutions?

ii.                 What are the various types of fraud in financial institutions?

iii.               What is the extent of fraud in financial institutions?

iv.      How is fraud detected and controlled in Nigeria financial institutions?

1.5RESEARCH HYPOTHESES

For the purpose of the study the following research hypotheses will be formulated and tested.

1.         Ho:          Poor management and poor security arrangement in

financial institutions cannot cause fraud.

  Hi: Poor management and poor security arrangement in financial institutions can cause fraud.

2.         Ho:          Loan fraud, cheque fraud and money laundering                         fraud do not constitute types of banks fraud.

     Hi:                      Loan fraud, cheque fraud and money laundering fraud

constitute types of banks fraud.

3.         Ho:          The extent of fraud in financial institutions is high.

      Hi:               The extent of fraud in financial institutions is low.

4.         Ho:          Fraud cannot be detected and controlled through the

accounting and personnel control.

     Hi:         Fraud can be detected and controlled through the

accounting and personnel control. 

1.6                       SIGNIFICANCE OF THE STUDY

The study of this nature is expedient as well as timely, coming at a time when central bank of Nigeria and Nigerian deposit insurance corporation (NDIC) and government and it’s agencies are doing something to curb the menace of fraud in commercial banks. The study will raise public awareness of the presence of fraud in commercial banks it will also generate public awareness of the existence of anti-fraud investigators; this will encourage and assist those who witness or suspect fraud being committed by people to report it and provide evidence.

This study will sensitize the public on the adverse effect of fraud on commercial banks and the Nigerians economy at large. It will equally serve as a reference Material for researchers in the same

field.

1.7                       SCOPE AND LIMITATIONS OF THE STUDY

The study focuses on fraud management and performance of financial institutions in Nigeria. The main constraints of the study include.

Time Constraint:

 Due to limited time given for the study, the researcher could not get all the information needed for the study.

Financial Constraint:

 The researcher has not got enough money to embark on the study. Due to financial constraint, the researcher could not visit places where information relevant to the study could be obtained.

Attitude of the Respondents.

 Some of the respondents show negative attitude towards the study because they felt that they have no financial benefit. 

1.8 DEFINITION OF TERMS

Commercial Banks: 

Commercial bank is any Bank whose business includes the acceptance of deposits withdrawable by cheque or cash (Okeke, 1996).

Assets: 

Assets is what a person or business owns. Castle and Owen (1992).

Fraud: 

“Fraud” refers to an intentional act by one or more individuals among management employees or third parties which results in a misrepresentation of financial statement. (Adeniyi,  2004).

Auditor:

Auditor is an independent person or body charged with the responsibilities of preventing, detecting financial irregularities (Fraud) which might impair the truth and fairness of the view given by the financial statements. (Eze, 2001).

Auditing: 

Auditing is the process carried out by the independent examination of and expression of opinion on the financial statements of an enterprises by an appointed auditor in pursuance of that appointment and in compliance with any relevant statutory obligation. (Adeniyi, 2004).

CBN: 

Central Bank of Nigeria.

NDIC: 

Nigeria Deposit Insurance Corporation.

Capital Base: 

Capital base is the amount contributed by the powers of a business which gives them right to enjoy all the future earnings

(Anyanwokoro, 1996).

Shareholders Funds:

Shareholders Funds  are paid up capital, share premium, statutory reserves, retained earning (Undistributed profit) general reserves, minority interests and other subsidiary reserves excluding preference shares and revaluation reserves (Iganiga and Anyanwokoro, 1996).